RIM Offers India Compromise to Avoid BlackBerry Service Ban

Research In Motion Ltd., facing a possible ban on its BlackBerry service in India, offered to lead an industry forum in developing ways to balance the country’s security needs with customers’ privacy requirements.

The Indian government has said it will ban some BlackBerry messaging services Aug. 31 unless RIM resolves concerns that the smartphones may be used for terrorist attacks or other illegal activity. Waterloo, Ontario-based RIM said yesterday it wants to find ways to address the government’s requests, while making sure its customers’ communications are secure.

RIM is seeking growth in emerging markets as it faces increasing competition in North America from Apple Inc. and Google Inc. At the same time, countries from India to Saudi Arabia and the United Arab Emirates have threatened to curtail BlackBerry messaging services over concerns they could jeopardize national security and local mores.

“This whole security issue was definitely unexpected,” said Steven Li, an analyst with Raymond James Ltd. in Toronto. “This is something of a perfect storm.”

RIM fell $1.03 cents, or 2.2 percent, to $45.81 at 10:40 a.m. New York time on the Nasdaq Stock Market, after closing yesterday at the lowest level since April 1, 2009. The shares had declined 31 percent this year before today.

Finding a Balance

“Finding the right balance to address both regulatory and commercial needs in this matter is an ongoing process and RIM has assured the Government of India of its continued support and respect for India’s legal and national security requirements,” the company said in a statement.

India is hopeful that RIM will provide a technical solution for monitoring BlackBerry messenger and enterprise services, Sachin Pilot, junior minister for telecommunications, said in New Delhi today.

RIM didn’t identify other technology or communications companies that could participate in the forum. It said secure wireless communications are important for economic development in countries such as India.

“The use of strong encryption in wireless technology is not unique to the BlackBerry platform. It is unquestionably an industry-wide matter,” RIM said in the statement. “Banning such strong encryption-based information and communications services would severely limit the effectiveness and productivity of India’s corporations.”

Government Risk

Analysts, including Ehud Gelblum of Morgan Stanley, have said conflicts with foreign governments are a potential problem for RIM’s prospects. Gelblum cut his recommendation on the stock on Aug. 20 to “underweight,” citing the “ongoing chorus” of countries threatening to shut down BlackBerry services.

The Canadian company will give India access to BlackBerry messaging beginning Sept. 1 to address those concerns, two government officials said on Aug. 16. RIM will first give Indian security agencies access on a manual basis, with information provided for individual phone numbers after government requests, said the officials who declined to be named because the discussions are private.

RIM will provide a more automated solution to tracking BlackBerry smartphone messages by November and company is also working on a solution to allow access to corporate e-mails, they said.

Irrevocably Encrypted

The company maintains a “consistent global standard” for lawful access to its messaging system which “does not include special deals for specific countries,” RIM reiterated in the statement yesterday. It also reaffirmed it can’t meet requests from governments for codes to users’ data because the BlackBerry corporate service was designed to prevent RIM, or anyone else, from being able to read encrypted information.

The BlackBerry infrastructure was designed to be a global system that works “independent of geography” and it’s a misperception that locating a network in India would help the government gain access to encrypted information, RIM said yesterday.

The BlackBerry smartphone maker has about 1.1 million users in India out of a total subscription base of 46 million worldwide, said Mike Abramsky, an analyst at RBC Capital Markets in Toronto.

To contact the reporters on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

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